Grit Real Estate Income Group has published its financial results for the year ended June 2022, reporting an increase in net operating income from properties of 3.5% with 92.8% (FY21: 92.5%) of the value of its contracted revenue collected during the year under review.
“Grit has weathered the challenges over the Covid period and, despite recent global uncertainty, is producing a robust underlying portfolio performance supported by our strong family of partnerships across the African continent,” commented CEO, Bronwyn Knight. “Our resilient and defensive business and investment potential is backed by our high-quality assets, strong cash collection, increasing leasing activity, achieving contractual rental escalations, reducing debt levels and with the potential for progressive dividends and stronger NAV growth going forward.”
The group produced a robust underlying portfolio performance, with the 21.6% EPRA net reinstatement value (NRV) per share reduction predominantly relating to the dilutive impacts of the company’s equity issuance in December 2021 and increased impairment charges.
Its higher occupancy rate of 95.3% (FY21: 94.7%) was predominantly due to new leases concluded in the corporate offices and retail portfolios. The retail sector across Africa appears to have stabilised and when combined with acquisitions and investments in the period, the reported value of investment properties has increased 6.9% in the financial year to US$856.7 million.
Grit further announced that it is complementing second half distribution with a limited share buy-back programme to support liquidity in the share on both the LSE and SEM with the share currently presenting compelling inherent value.
The portfolio was independently valued at 30 June 2022, with like-for-like property valuations increasing 6.9% in functional currencies which are predominantly US$ and Euro, as well as US$-pegged currencies. Moves in EUR:US$ exchange rates have however resulted in 0.3% like-for-like valuation declines in the reported US$ values. Acquisitions and capex additions amounted to US$59.2m in the period.
Total dividends per share declared for the year equated to US$4.50cps (2021:US$1.50cps) representing an 89.8% pay-out ratio and a 12.67% dividend yield on the current share price. Distribution comprises the interim dividend declared in February 2022 and the final dividend of US$2.00cps declared on Friday, the 28th of October 2022.
Its loan-to-value (LTV) decreased to 46.7% (2021: 53.1%). Grit issued shares worth US$76.3 million in December 2021, the net cash proceeds of which were utilised to decrease overall levels of debt. Additionally, and as a direct result of the equity placement being lower than targeted at that time, the acquisition of a controlling interest in GREA was restructured, settled in cash from revolving debt facilities, and the further direct LTV benefits of financial consolidation delayed. LTV is expected to fall by 3.9% upon the consolidation of GREA.
“The Board remains committed to reducing LTV levels to below its near-term target of 45% and then to its medium-term target of between 35% to 40%. Capital recycling initiatives to support this target in the financial year included the sale of 100% of ABSA House in Mauritius and part sales of the Orbit manufacturing facility and 4.9% of the Group’s holdings in Botswana-listed Letlole La Rona,” commented Knight.
During the year under review, Grit acquired an increased stake in GREA, combined with operational control over GREA’s external asset manager, Africa Property Development Managers. These acquisitions are expected to contribute to Grit’s ability to deliver enhanced profitable growth through GREA’s extensive and attractive pipeline of accretive development opportunities.
Grit has also agreed a pathway to securing a controlling interest in GREA. The potential optimisation of Grit and GREA’s balance sheets upon gaining control are expected to deliver further additional value to Grit’s shareholders and reduce the overall LTV for the Group, considering GREA’s low gearing levels.
Commenting on Grit’s strategy post the targeted acquisition of a controlling interest in GREA, Knight said that Grit will continue to deploy its resources within the following principal strategic areas:
- Owning and managing a diversified portfolio of high-quality real estate assets across the African continent (excluding South Africa) – with strong valuation recovery potential post Covid disruptions.
- Pursuing limited risk-mitigated real estate developments for existing and target tenants, predominantly focused on the industrial, embassy accommodation and data centres sectors, driving accelerated NAV growth into the future. Development exposure will not exceed more than 20% of group gross asset value, and upon completion, will be included in the income producing portfolio of the group thereby underpinning future income growth – leading to an expectation of enhanced yield and income upon completion of the developments.
- Generation of additional fee income from real estate, facilities, and development management services to both internal clients and to third party clients and co-investors – expected to result in an expectation of enhanced income.
Post the balance sheet date, on the 19th of October 2022, Grit concluded a syndicated sustainability linked cross-collateralised debt refinancing facility of up to $306 million, refinancing seven existing debt facilities of US$279.1 million of existing debt facilities across Mozambique, Zambia, Ghana and Senegal, agreed a corporate revolving credit facility, and secured additional funding for the future redevelopment of Club Med, Senegal.
The landmark transaction, the largest sustainability-linked real estate debt transaction in Sub-Saharan Africa (excluding South Africa) creates increased diversification and tenor in Grit’s debt, with optimal funding costs and a scalable long term debt solution.
The group additionally entered into a further US$100 million of notional interest rate hedges, minimising the impact of expected global interest rate movements on its weighted average cost of debt. Grit now has 73.3% of its US$ denominated debt fixed.
“The decisive course correcting action by the Board and management has yielded encouraging signs of growth, with many of the benefits initiated during the year under review expected to flow through in the current year and sustained over the long term. Notwithstanding these early signs of recovery, the Board recognises the increased global instability, driven by higher interest rates, inflation and shortages of staple foods and fuel, largely due to the Ukraine/Russia conflict.
A higher inflationary environment supports revenue growth as a result of Grit’s inflation-linked contractual escalations, although real increases will be done in collaboration with tenants to ensure long-term sustainability.
“We are however well positioned for recovery in a post-pandemic environment, backed by strong cash collection, increased leasing activity, resilient assets and the potential for stronger NAV growth going forward. Upon the expected final completion of the acquisition of a controlling interest in GREA, the Board’s total return target will increase from the current 12% to a range of between 13% and 15% per annum,”she concluded.
